A Sampling of Advisory Opinion

By

Anita Peltonen

Updated Dec. 20, 2004 12:01 a.m. ET

Order Reprints

Print Article

Text size

CyberTrader/Charles Schwab 115 Wild Basin Rd., Austin, Texas 78716 DEC. 14 - It's time for our Fearless Forecast of 2005. The major feature of 2005 will be the topping out of the bull market. At the end of this month, the bull market will be 561 days old. That's how many trading days have elapsed since October 9, 2002...Expect an acceleration in economic growth and the monthly job-growth numbers to finally improve. The shrinking budget deficit is also likely to get some good ink. Who knows, perhaps the Iraq elections will even go better than anyone currently expects! People will be willing to buy initial public offerings again, and corporate managers will be willing to take other companies over.

Much of 2005 will see the market stuck in a fairly narrow range. This will provide traders with many opportunities as market leadership fragments. [So] it will not be dissimilar to the current year, when there were terrific opportunities in [several] areas, most notably energy stocks, while the overall market has risen only modestly (the Standard & Poor's 500 is up 6.9% for the year).

Because we believe the great secular bull market that began in 1982 ended in 2000, we believe the market -- as a reflection of the economy -- to have entered a more difficult period, [like] the 1970s. These long sideways periods are where we find the short bull markets. Should the market extend toward the average-length bull market length of 797 trading days, it would not peak until the first week in November 2005....

It is way too early to move out of the market, as there will be oodles of good news and trading opportunities for much of 2005. Some time in the year's second half, we expect the next bear market will gather strength, with an anticipated bottom some time in 2006. [We'll tackle likely group and sector leadership next week.]

-- Ken Tower

Avondale Partners 3102 West End Ave., Nashville, Tenn. 37203 DEC. 13 - The November producer-price index report continues to show sharp rises in crude-input costs and a relatively difficult pricing environment for finished consumer goods. However, it does not appear that this situation deteriorated any further, and in fact showed some modest easing in November from October levels.

Finished consumer goods (ex-food and energy) pricing was up 0.2% in November, in line with the 0.2% increase experienced in October. Over the past year, pricing for finished goods (ex-food and energy) is up +1.9%, a modest improvement from +1.7% in October. Meanwhile, crude materials (ex-food and energy) increased 2.5% in November, a slight deceleration from the +5.4% growth in October. Over the past 12 months, costs for crude inputs (ex-food and energy) are up 25.6%, modest relief from 28.3% in October.

Overall, we would characterize the cost/price equation as being in a trading range over the past several months, with crude-input costs being up in the +20% to +30% range year over year, and finished goods pricing up in the +1% to +2% range.

-- Douglas Lane

Trader Mike's Market Bulletin 2276 Franklin Turnpike, Danville, Va. 24541 DEC. 13 - Right now, I am sitting on the sidelines, waiting for this gold correction to run its course. In the meantime, I am looking for some short-term (two-to-five-day holding period) January Effect plays.

The January Effect, if you don't already know, is the tendency for small-cap stocks, which performed horribly all year long, to rally in January. What happens is that tax-loss selling swamps these stocks in November and December. Once that selling runs its course, most of the sellers are out of the stock and the stocks tend to rally. If these sellers are heeding the wash-sale rule, then they are selling out in November and buying back 45 days later.

This trend is well known [but] I have noticed a tendency for it to start earlier and earlier every year -- probably due to the fact that mutual funds are required to report their holdings in October. Also, [because] the trend is now so well-known, [more] investors [may be] buying ahead of it.

For the rest of the month I'm going to search for small-cap stocks that were the worst price-performers in the first 11 months -- those most vulnerable to tax-loss selling -- for January Effect candidates. I am then going to look for those that have built bases and have decent fundamentals. Two that have caught my eye today are Winn Dixie Stores and Mangustics Group.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.